Notesale: Turn your study into money

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1
...
59(1))

Plc (s
...
Shareholders?

1 (s
...
7(1) & 8(1)

Min
...
154(1)

2 (s
...
270(1))

Yes (s
...
15(4))

Certificate of Incorporation
(s
...
761(1) & (2))

•

Min
...
8(1)(b))

Min
...
763(1)(a)(b))

Principle of Maintenance of Share Capital;

Offer of Shares to
the Public?

Prohibited (s
...
Amount
Payable for Share
Capital

No restriction
(s
...
593(1))
25% of nominal value must
be paid on allotment (+
whole of any premium)
(s
...
/Disclosure:

None

Expenses:

None

Management:

Partnership Agreement (default provisions apply)

Shares are issued by a company to raise finance
Each share must have a fixed nominal/par value (s
...
g
...
g
...
790D: Duty on companies to identify their PSC’s
S
...

2
...
/Disclosure:

Registered Office, Members Details, Accounts, PSC’s

Expenses:

Audited Annual Accounts, Confirmation Statement

Management:

Partnership Agreement (LLPA default provisions)

LTD (LIMITED COMPANY)

Shareholders exercise ultimate control over the company; and
Shareholders hope to receive a financial return on their investment
Determining the company’s constitution (Articles of Association)
Voting on Shareholder Resolutions

Articles of Association (AA):
•
•

•
•

Determine the internal management of the company and set out rules that
both directors and shareholder must follow
The AA form a contract between the shareholders and the company
o
The directors are not a party to this contract, but a d

Dis-Application of Pre-Emption Section

s
...
569

s
...
570 – if a general authority was given
s
...
85(1))
Being admitted on a UK regulated trading market (s
...
86(1): Exempt offers (to >150 people or class s
...
11A FSMA: Exempt securities

Shares cannot be issued and discount to nominal but can be traded at discount
Price per share often = Value of company divided by number of issued shares

Records to be kept by a company:

4
...
two types;
•
•

Loan Facilities: Overdraft and Term Loan’s (money repaid by maturity)
Debt Securities: Bonds (piece of paper giving right over the company)

•

Under s
...
859Q (4))
Failure to comply is an offence and company is liable to a fine

Debt/Equity Hybrid’s include;

•

•
•

FINANCING A COMPANY? DEBT V EQUITY

Convertible Bonds – bonds can be converted into shares by issuer
Preference Shares – although wholly equity if a share has a fixed maturity
(redeemable date) and a fixed dividend in accounting purposes they look a
lot more like a debt security

The main debt finance documents include:
•
•
•

Term Sheet – statement of the key terms (loan amount, interest rate, term
length, fee’s, undertakings – a lot like a head of terms)
Loan Agreement – sets out main commercial terms of agreement (heavily
negotiated)
Security Document – sets out what assets are being given as security, and
type of security over each asset

Factors

Equity

Return?

•
•

Dividends (company
must turn a profit)
Capital growth

When?

•
•
•

Winding up
Sale of Shares
Shares Redeemed or
Bought back

•
•

Per Loan Agreement
Sale of the Debt

Priority?

•
•

Shareholders paid last
Can improve via
Shareholder
arrangements

•

Creditors paid before
shareholders
Can improve priority by
taking security
Can improve via
Creditor arrangements

Voting Rights
(dependent on the
rights attached to the
shares)

•

New Shareholders
would need to be
(legally FSMA) found
for issue
Dividends are
allocation of profit
therefore not a
deductible expense for
tax purposes

•

GEARING
Calculated using this formula;
𝐿𝑜𝑛𝑔 𝑇𝑒𝑟𝑚 𝐷𝑒𝑏𝑡 (𝑁𝑜𝑛 − 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠)
𝑥 100%
𝐸𝑞𝑢𝑖𝑡𝑦 (𝑇𝑜𝑡𝑎𝑙 𝐸𝑞𝑢𝑖𝑡𝑦)
High Gearing Percentage (%):

Higher Credit Risk

Low Gearing Percentage (%):

Lower Credit Risk

Debt
•
Interest (contractual
right)

Control

•

•
•

•

SECURITY
Other

Security protects a creditor when lending money; various formed include:
•
•
•
•

Pledge: Borrower gives possession of asset until debt repaid
Lien: Creditor retains possession of asset until debt repaid
Mortgage: Borrow retains possession but ownership (legal or equitable) is
transferred to the creditor until debt is repaid
Charge: Borrower retains possession, and an equitable proprietary interest
is created over the asset in favour of the creditor

Often a creditor will have numerous forms of security over several of the
company’s assets; forming a debenture

FIXED AND FLOATING CHARGES
Fixed charges:
•
•

Creditor has control over the asset – it cannot be disposed of, or have
further charges created over it without the creditors consent
When the charge becomes enforceable, the creditor can appoint a receiver
to exercise the power of sale over that asset

Floating Charge:
•
•

This charge ‘floats’ over a class of asset that the company need to remain in
control of disposal of (e
...
stock)
Crystallisation means the floating charge is effectively then fixed to that
asset – this may occur by operation of law (insolvency) or by a specified
event contractually agree

REGISTRATION OF CHARGES
Charges created on or after 6th April 2013 are effective only if;
•

Within 21 days beginning the day after the charge was created the
following are delivered to Companies House (s
...
859D statement of particulars of the charge (MR01);
o
A certified copy of the charge (s
...
859H
•

•

If the charge is not registered at all, or not within the 21-day period;
o
The charge is void against a liquidator/administrator etc
...
DIRECTORS
SUBSTANTIAL PROPERTY TRANSACTION (S
...
172

Duty to promote the success of the company

S
...
177(5) applies – other director
ought to know of interest

S
...
190: A SPT is the buying/selling of a substantial non-cash asset between the
company and a director/director of holding comp/connected person

A director can give a general interest notice (considered always to
have an interest in any transaction with a specified party

LONG TERM SERVICE CO NTRACTS (S
...
191(1)(a) or (b) (&/or connected person s
...
1163)

REQUIREMENTS
s
...
191(2(a-b))
If yes to all = OR required (s
...
177) (transaction with a director)

•

•

S
...
188(3)(a)(ii): Limited Termination – if it cannot be terminated by
company by notice or only in specified circumstances
o
Consider how easily the service contract can be terminated
S

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